The Alabama Department of Insurance has adopted a rule that sets forth a best interest standard for annuity producers in recommending an annuity to their customers.
The new rule requires a producer, “when making a recommendation of an annuity, [to] act in the best interest of the consumer under the circumstances known at the time the
recommendation is made, without placing the producer’s or the insurer’s financial interest ahead of the consumer’s interest.” The rule also requires the producer to satisfy
certain duties regarding care, disclosure, conflict of interest, and documentation.
To satisfy the duty of care, the producer must exercise reasonable diligence, care, and skill in knowing the consumer’s financial situation, insurance needs, and financial
objectives and have a “reasonable basis to believe the recommended option effectively addresses the consumer’s financial situation, insurance needs, and financial objective[s]
over the life of the product, as evaluated in light of the consumer profile information.”
The duty of care does not mean the producer must necessarily recommend the annuity with the lowest one-time or multiple occurrence compensation structure, nor does it mean
the producer has an ongoing duty to monitor.
Prior to recommending an annuity, the producer must prominently disclose to the consumer the scope and terms of the relationship with the consumer and the role of the producer
in the transaction, must “identify and avoid or reasonably manage and disclose material conflicts of interest, including material conflicts of interest related to an ownership
interest” and must make a written record of any recommendation and the basis for the recommendation.
The rule does not create a fiduciary obligation or relationship with the consumer, and producers are not subject to civil liability for breaching any fiduciary standard of conduct.
The state has enacted a best interest standard for annuity producers in recommending an annuity to their customers. The new law (SB 1557) is based on the NAIC model suitability standard
(discussed below) and the law recently enacted by Iowa. The law provides:
Requires a producer to “act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the producer’s or the insurer’s financial
interest ahead of the consumer’s interest.”
Indicates that a producer has acted in the best interest of a consumer if it satisfies the law’s care, disclosure, conflict of interest and documentation requirements.
To satisfy the “care” requirement, a producer must “exercise reasonable diligence, care and skill” to satisfy a number of requirements, including the duty to “know the consumer’s financial situation,
insurance needs and financial objectives” and to understand the available product options.
Does not create a fiduciary obligation or relationship with the consumer but only “a regulatory obligation,” does not require the lowest compensation for the producer and does not impose an ongoing
monitoring obligation.
Says recommendations that “comply with comparable standards satisfy the requirements” imposed by the Arizona statute. “Comparable standards” include the SEC’s Reg BI and fiduciary interpretation for
RIAs and the ERISA fiduciary requirements.
As with other state laws, the statute also makes clear that it does not “create or imply a private cause of action for violation of [the law] or subject a producer to civil liability under the best
interest standard of care…or under standards that govern the conduct of a fiduciary or fiduciary relationship.”
The Arkansas Insurance Department has amended its Suitability in Annuity Transactions Rule (“Rule 82”) to adopt the NAIC’s model suitability standard (discussed below).
Although the amended Rule 82 took effect December 29, 2020, individuals and entities subject to the rule will be allowed six months from its effective date (i.e., until
June 29, 2021) to comply with the amended provisions.
Connecticut HB 7161 “An Act Requiring Administrators of Certain Retirement Plans to Disclose Conflicts of Interest” went into effect on October 1, 2017.
On January 1, 2019, any company that administers a retirement plan offered by a political subdivision of the state will have to disclose: “(1) The fee ratio and return, net of fees,
for each investment under the retirement plan, and (2) the fees paid to any person who, for compensation, engages in the business of providing investment advice to participants in the
retirement plan either directly or through publications or writings.”
The law applies to any person that: (1) enters into a contract or agreement with a 403(b) plan not regulated under ERISA to provide services to the plan; and (2) reasonably expects
to receive $1,000 or more in direct or indirect compensation for such services.
The Delaware Department of Insurance has amended its Suitability in Annuity Transactions Regulation (“Regulation 1214”) to adopt the NAIC’s model suitability standard (discussed below).
The amended regulation takes effect on August 1, 2021.
On February 27, 2020, the Iowa Insurance Division proposed a best interest standard for annuity producers and securities sales representatives to act in
the best interest of their customers in recommending an annuity.
In finalizing the rule, the Division indicated that, in response to comments, it was postponing the securities portion of the standard but proceeding with
the insurance portion of the rule without change from the proposal. The Division indicated that it “anticipates publishing a new Notice of Intended Action related
to the securities portion of the rulemaking this summer”, though no proposal has been published as of July 10, 2020.
The final rule, which is similar to the NAIC model suitability standard (discussed below) and is intended to be consistent with the SEC’s Regulation Best Interest,
will require financial professionals to “always put the consumer’s interest first” and to only make recommendations that match the customer’s needs, objectives and
personal situation.
The final rule specifically provides that it is not intended to give consumers a private right of action to enforce the new standard or to create a fiduciary
relationship between a producer and a consumer.
The insurance portion of the rule took effect January 1, 2021.
Kentucky requires agents to act in the best interest of the consumer when recommending an annuity. The training requirement has been expanded to include the new standard of conduct. Agents licensed before 1/1/2022 must complete the training by 6/30/2022. Agents who have completed the original annuity training course under the old rule, must complete either a new one-time 4 hour course or an additional one-time 1 hour course. Agents who obtain a life insurance license on or after 1/1/2022 must complete the new one-time 4 hour course before selling annuities. Compliance with another state’s training requirements that are substantially similar to this requirement will be deemed in compliance with Kentucky’s requirement
The Maine Bureau of Insurance has finalized a rule amending its Suitability in Annuity Transactions Regulation (“Chapter 917”) to adopt the NAIC’s model suitability standard (discussed below).
The Michigan legislature has amended Chapter 41A of its insurance code (entitled “Annuity Recommendation to Consumers”) to adopt the NAIC’s model suitability standard (discussed below).
The bill would have imposed a fiduciary standard on brokers and insurance representatives, including “to act in the best interest of the customer without regard
to the financial or other interest of the person or firm providing the advice.”
The training requirement has been expanded to include the new standard of conduct. Producers licensed before 1/1/2022 must complete the training by 6/30/2022. Those who have completed an annuity training course approved by the department prior to 1/1/2022, are given the option of either a new one-time 4 hour course or an additional one-time 1 hour course. Producers who obtain a life insurance license on or after the 1/1/2022 must complete the new one-time 4 hour course before selling annuities. Compliance with another state’s training requirements that are substantially similar to this requirement will be deemed in compliance with Mississippi requirement. The satisfaction of the components of the training requirements of any course or courses with components that are substantially similar will satisfy the training requirements in Mississippi. Insurers must provide product-specific training.
The amended provisions take effect January 1, 2022.
The Michigan legislature has amended Chapter 41A of its insurance code (entitled “Annuity Recommendation to Consumers”) to adopt the NAIC’s model suitability standard (discussed below).
The bill would have imposed a fiduciary standard on brokers and insurance representatives, including “to act in the best interest of the customer without regard
to the financial or other interest of the person or firm providing the advice.”
On April 7, 2021, the Nebraska legislature passed a law amending the Nebraska Protection in Annuity Transactions Act to adopt the NAIC’s model suitability standard (discussed below).
The amended provisions take effect January 1, 2022.
The Ohio Department of Insurance has amended its Suitability in Annuity Transactions Rule (“Rule 3901-6-13”) to adopt the NAIC’s model suitability standard (discussed below).
The amended regulation took effect February 14, 2021, although individuals and entities subject to the rule will be allowed six months from its effective date (i.e., until
August 14, 2021) to comply with the amended provisions.
The Pennsylvania Department of Insurance has amended its Suitability in Annuity Transactions Rule (“40 PA. CONS. STAT. §§ 627-1 to 627-8 (2010/2018) (previous
version of model).”) to adopt the NAIC’s model suitability standard (discussed below).
The amended regulation took effect February 14, 2021, although individuals and entities subject to the rule will be allowed six months from its effective date (i.e., until
August 14, 2021) to comply with the amended provisions.
The Rhode Island Department of Insurance has finalized a rule that sets forth a best interest standard for annuity producers in recommending an annuity to their customers.
The final rule requires a producer, “when making a recommendation of an annuity, [to] act in the best interest of the consumer under the circumstances known at the time the
recommendation is made, without placing the producer’s or the insurer’s financial interest ahead of the consumer’s interest.” The rule also requires the producer to satisfy certain
duties regarding care, disclosure, conflict of interest, and documentation.
Under the rule, a producer must exercise reasonable diligence, care, and skill in knowing the consumer’s financial situation, insurance needs, and financial objectives. The producer
must also understand the available recommendation options after making a reasonable inquiry into the options available to the producer and have a “reasonable basis to believe the recommended
option effectively addresses the consumer’s financial situation, insurance needs, and financial objectives over the life of the product, as evaluated in light of the consumer profile information.”
This duty does not mean the producer must necessarily recommend the annuity with the lowest one-time or multiple occurrence compensation structure, nor does it mean the producer has an ongoing duty to monitor.
Prior to recommending an annuity, the producer must prominently disclose the scope and terms of the relationship with the consumer, the role of the producer in the transaction, the sources and
types of cash compensation and non-cash compensation to be received by the producer, including whether the producer is to be compensated for the sale of a recommended annuity by commission as part
of premium or other remuneration received from the insurer, intermediary, or other producer or by fee as a result of a contract for advice or consulting services.
The producer must “identify and avoid or reasonably manage and disclose material conflicts of interest, including material conflicts of interest related to an ownership interest” and make a written
record of any recommendation and the basis for the recommendation.
The final rule does not create a fiduciary obligation or relationship with the consumer, and producers are not subject to civil liability for breaching any fiduciary standard of conduct.
The South Carolina Department of Insurance has amended its Suitability in Annuity Transactions Rule (“Rule 1976rdquo;) to adopt the NAIC’s model suitability standard (discussed below).
On June 4, 2021, the Texas legislature passed a law amending the state’s Suitability of Certain Annuity Transactions statute to adopt the NAIC’s model suitability standard (discussed below).
The amended provisions take effect September 1, 2021.
The Virginia Bureau of Insurance has amended its Rules Governing Suitability in Annuity Transactions to adopt the NAIC’s model suitability standard (discussed below).
